TaxTMI 
TaxTMI 
2015 (6) TMI 284
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....xplanation of Section 73 and Explanation 2 to Section 28 of the Act are specifically applicable to the Assessee's case while provisions of Section 43(5) of the Act applies in general to all classes of Assessees." 3. Facts relating to the issue in brief are that the assessee filed Nil return of income after adjusting brought forward losses and paying tax u/s 115JB of the Income Tax Act, 1961 (hereinafter referred to as the Act) on 24.10.2007, which was processed u/s 143(1) of the Act. Later on, the case was selected for scrutiny. During the course of assessment proceedings, the AO noticed that the assessee was dealing in shares & securities, earning commission on the booking of flats and from commodity trading. The AO asked the assessee to explain as to why Explanation (5) to section 73 of the Act should not be made applicable to the transactions in shares & securities. The assessee vide reply dated 15.10.2009 submitted that the transactions made by the assessee were of delivery based transaction and some of them were nondelivery based. As regards to the applicability of explanation (5) to section 73 of the Act, the assessee stated that the provisions of clause (c) and (d) to....
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....spect it is submitted that the ld. AO has failed to understand the provision of the law and the recent judicial pronouncement in this respect and has erred in treating as loss incurred on derivatives as speculation loss as against the same being business loss. Your honor will endorse that the fact that the loss of Rs. 95,06,474/- has been incurred on derivatives (share futures) is undisputed. Also the fact that there is a profit of Rs. 74,72,122/- on account of trading in commodity futures is undisputed. The only question before you is the allowability of the same as business profit/loss. In this respect your attention is drawn to the provisions of section 43(5) of the Act:- 43(5) "speculative transaction" means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scraps: Provided that for the purposes of this clause- (a) a contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting business to guard against loss through future price fluctuations....
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....ur honor the income from dealing in shares/commodities through derivatives i. e. futures and options is considered as business income/loss w.e.f 25.01.2006 as such the loss on derivatives should be treated as business loss and profit on commodity derivatives as business profit. In this respect your attention is drawn to the following judgments: G. K Anand Bros. Buildwell (P) Ltd. vs ITO 34 SOT 439 (2009) wherein it was held Whether loss arising in future and option transaction carried out in a recognized stock exchange is to be treated as a business loss and not as loss in speculation business- held yes- The similar findings have been appreciated in the following case laws: Seema Jain vs. ACIT 6 ITR (Trib) 488 (Del) "profit or loss from derivative trading will not be speculative profit or loss, therefore, the same will be eligible to be set off against the business income carried out by the assessee" RBK Securities (P) Ltd. vs. ITO 118 TTJ (Mum) 465 "Dealing in derivatives is a separate kind of transaction which does not involve any purchase and sale of shares and therefore loss on account of F&O transactions cannot be treated as speculative loss ". Dy. CIT ....
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....y actual delivery or transfer of the commodity or scraps, thereafter, a proviso have been inserted to exclude certain transactions from the purview of the speculative transactions and clause (d) specifically provides that an eligible transaction in respect of trading in derivatives referred to in clause (ac) of section 2 of the Securities Contract (Regulation) Act, 1956 carried out in a recognized Stock Exchange shall not be deemed to be a speculative transaction. Thus, this clause specifically excluded derivatives from the purview of section 43(5) of the Act. It was further stated that there is no clause in section 73 of the Act to override the provisions of clause (d) of section 43(5) of the Act which categorically provides that transaction in respect of trading in derivative shall not be deemed to be a speculative transaction. It was also submitted that the assessee had not incurred loss in the sale/purchase of shares and was doing trading in derivative which is different than the share as is evident from the definition given in the Securities Contract (Regulation) Act, 1956 and also under the Companies Act, thus, the share and derivatives are distinct items. Therefore, the expl....
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....stock broker or sub-broker or such other intermediary registered under section 12 of the Securities and Exchange Board of India Act, 1992 (15 of 1992) in accordance with the provisions of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) or the Securities and Exchange Board of India Act, 1992 or the Depositories Act, 1996 (22 of 1996) and the rules, regulations or bye-laws made or directions issued under those Acts or by banks or mutual funds on a recognized stock exchange; and (B) which is supported by a time stamped contract note issued by such stock broker or sub-broker or such other intermediary to every client indicating in the contract note the unique client identity number allotted under any Act referred to in sub-clause (A) and permanent account number allotted under this Act; (ii) "recognized stock exchange" means a recognized stock exchange as referred to in clause (f) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and which fulfils such conditions as may be prescribed and notified by the Central Government for this purpose." 9. In the present case, it is an admitted fact that the assessee was engaged in the business of de....